The Business of HockeyDiscuss the financial and business aspects of the NHL. Topics may include the CBA, work stoppages, broadcast contracts, franchise sales, expansion and relocation, and NHL revenues.

Why Paul Kelly thinks expansion would help end NHL lockout

We do seem to be a hearing a lot from Kelly lately. Seems a bit strange. Is he getting set up to play the Ted Saskin role?

About his idea of using expansion money to bridge the gaps, as if that is plausible that the owners are about to forgo on that capital stream, Fehr claims he asked owners about expansion and they claimed it wasnt on the calendar. We know it was on Boots' calendar. We also know the owners asked for a two asterisk years of realignment ostensibly to allow them to change things a 2nd time when 2 expansion teams came in and they wanted to ensure there was maximum marketing opportunities around realignment perhaps so they hoped to change things twice, once to realign to prepare for the expansion teams and a 2nd time to receive them, instead of just once when the expansion teams entered the league? Doing it just once would take away one of the greatest fan enjoyments - asterisk years.

The strategy's been working pretty well for NHL players, who banked 1.8 billion last year. How much do you think they'd get in salary in a 14 team league made up of solely traditional markets?

1.8 B is the revenue of the league. Guess what 40% of that was from 7 Canadian teams. How much do you think the "tv deals" (if it exists) of these "large markets" (not large HOCKEY markets) earn since they expanded to the south since 10 years ago? You talk about money, when majority of it was from traditional markets.

Another former executive committee member was concerned that Kelly's dismissal would signal a return to the "tragic days" of the past that saw the sport lose an entire season (the 2004-05 lockout) because owners and players were at such odds. He told ESPN.com that reports of Kelly being too close to the NHL made no sense given that the players and league share in league revenues.

Expansion? Are you crazy? The league is water downed enough as it is. They should be talking contraction if anything! If we didn't have the bottom feeder teams, we wouldn't be in this mess every 8 years!

#2 - "Watered down" is a myth. Quality hockey is about balance and style of play. A league of super sound technical players with all the fringe NHL players removed… might be boring as hell. Everyone would be in position, no one makes a mistake, and system would be more important than talent, so every team becomes a lock/trap team. We don't know. Maybe mistakes being made, and having a 6th D-man on team #30 allow the superstars to impress us.

#4 - The cap squeezes veterans out of the league (payroll inflexibility leads to teams using young, inexperienced - aka CHEAP - players for their role players instead of veteran depth guys) more than expansion. Some of these players would stick around longer with two more teams.

#5 - The current system of tying payroll to league average HRR ensures we will always be in this mess, unless all the teams have similar revenues and grow them at equal rates. The current situation is that the league average revenue is between the #10 and #11 revenue teams, making 10 teams too poor to keep up financially. Eliminating those 10 poor teams raises the average revenue, and CREATES NEW POOR TEAMS. If you simply axe the bottom every CBA, you'd ultimately end up in a situation where TOR is a "have" and one other team (NYR or MON) is a "have not" and everyone else folded.

In other words: "If we didn't have bottom feeder teams we wouldn't be in this mess" is a load of crap. If we didn't have THOSE bottom feeder teams, the next poorest would become the bottom feeder teams. It's a curve, someone has to be at the bottom. Be happy it's PHX, FLA, CBJ, NASH who lack history, and not BUF, OTT, PIT, WIN, EDM, MIN who've been NHL markets for a long time.

#2 - "Watered down" is a myth. Quality hockey is about balance and style of play. A league of super sound technical players with all the fringe NHL players removed… might be boring as hell. Everyone would be in position, no one makes a mistake, and system would be more important than talent, so every team becomes a lock/trap team.

#4 - The cap squeezes veterans out of the league (payroll inflexibility leads to teams using young, inexperienced - aka CHEAP - players for their role players instead of veteran depth guys) more than expansion. Some of these players would stick around longer with two more teams.

#5 - The current system of tying payroll to league average HRR ensures we will always be in this mess, unless all the teams have similar revenues and grow them at equal rates. The current situation is that the league average revenue is between the #10 and #11 revenue teams, making 10 teams too poor to keep up financially. Eliminating those 10 poor teams raises the average revenue, and CREATES NEW POOR TEAMS. If you simply axe the bottom every CBA, you'd ultimately end up in a situation where TOR is a "have" and one other team (NYR or MON) is a "have not" and everyone else folded.

In other words: "If we didn't have bottom feeder teams we wouldn't be in this mess" is a load of crap. If we didn't have THOSE bottom feeder teams, the next poorest would become the bottom feeder teams. It's a curve, someone has to be at the bottom. Be happy it's PHX, FLA, CBJ, NASH who lack history, and not BUF, OTT, PIT, WIN, EDM, MIN who've been NHL markets for a long time.

Define "bottom feeder teams": Of course (technically) there are always going to be teams on the bottom and teams on the top in terms of revenue, but that doesn't mean the league should keep the bottom teams because of that. If that's the case why doesn't the league just get rid of Toronto: Revenues will plummet (as will the cap) and the great hockey markets of Florida and Phoenix will thrive! Then we'll have the joy of another lockout as "NHL players' salaries take-up too much of the league's revenues".

Define "bottom feeder teams": Of course (technically) there are always going to be teams on the bottom and teams on the top in terms of revenue, but that doesn't mean the league should keep the bottom teams because of that. If that's the case why doesn't the league just get rid of Toronto: Revenues wil plummet (as will the cap) and the great hockey markets of Florida and Phoenix will thrive! Then we'll have the joy of another lockout as "NHL players' salaries take-up too much of the league's revenues".

Greedy players.

But that's my point: If the system actually operates better when you remove TOR, MON and NYR than if you remove NYI, PHX, CBJ, doesn't that mean the problem is the SYSTEM and not the TEAMS?

While the league is long-term better off with better markets and no teams "being a drain," the goal is to get as many teams as possible within the salary range with 50-57% of their HRR going to the players.

Let's say everyone in the league was making at least $90 million in revenues (and everyone else is unchanged). That adds $114 million to the revenues of the bottom 11 teams. You would think this would make the league better: No more "bottom feeders."

And it would, but not by much. Instead of 11 teams with 57% of HRR a combined $64.76 million below the floor, you'd have 12 teams a combined $61.39 million below the floor. So you need $114 million in revenues to cover $3.45 million in increased player costs. That is a broken model.

To solve the league's woes, you simply set up the system to be based on "THE MIDDLE TEAMS" instead of the "AVERAGE TEAM."

Using the MEDIAN of league revenue as your baseline for the the payroll midpoint, five teams move from below average to above average (and can pay small amounts into revenue sharing).

21 teams would be in the payroll range. The "bottom feeders" are a combined $10.3 million below the floor. And there's only two of them: NYI and PHX. NYI has a new building coming, so don't worry about them. Make the eligible for revenue sharing for a couple years (plenty to go around now: fewer teams need less money to hit the midpoint or floor)

Let's say NYI moving to Brooklyn gives them $98 million 2011 revenue dollars.
If you moved PHX to QUE and they matched OTT's revenues, the AVERAGE revenue would go up $8.3 million (and the midpoint $4.73 million). But based on MEDIAN, the midpoint only goes up $1.5 million with those two franchise moves.

All 30 teams would be either "within the payroll range" or (six teams) comfortably spending to the cap (based on 2011 dollars).

Of course, that works using 2011 dollars. The problem is you need the growth rate of the median and the bottom to be as close to the same as possible going forward. But it is a lot easier to keep up with the median growth rate (about 27%) than it is to keep up with the average growth rate (38%).

Actually, he's right. Adding more slam-dunk rich market teams in Canada makes things worse for more teams under the current system.

UNLESS sharing the market slows down the Leafs' growth. But sharing NYC with TWO TEAMS hasn't prevented the Rangers from growing at a very similar clip to TOR (55% to 62%), so that probably won't slow them down.

If HRR/Payroll linkage is a chain that ties all 30 teams, the problem isn't the weight at the end of the chain slowing down everyone; it's the speed at the front causing the chain to snap, leaving the last 20 teams behind.

You have to find a way to prevent large amounts of revenue at the top of the league from being a BAD THING. It's a very good thing.

You have to make TOR, NYR, MON be outliers. Make THEM the exceptions.
The teams at the top should have more money than they can spend; not the teams at the bottom spending more money than they have.

Got it. Increased revenue is bad, so forget about teams that can make a healthy profit.

Marginally profitable or break even teams are more desirable.

Phoenix's soultion? Move the Leafs to Atlanta. Cap will decrease, all problems solved.

Perversely, under the current way of arriving at the % of HRR which is to take the mean of the HRR number, yes. Markets that make far more money than they can spend under the cap are bad for teams that struggle with making payroll. There are many more teams near the bottom of the revenue barrel than teams at the top. Less revenue from two or three teams at the top actually becomes profit for more teams in the middle because with linked salaries it means that every team will spend less and they can turn a, small, profit on their income. Changing to a median figure means that the salary figures will move with the middle of the league rather than being tied to TOR, MTL and NYR making 80% (or there about) of the profit of the entire league and skewing the mean revenue figures up.

Got it. Increased revenue is bad, so forget about teams that can make a healthy profit.

Marginally profitable or break even teams are more desirable.

Phoenix's soultion? Move the Leafs to Atlanta. Cap will decrease, all problems solved.

No one really disputes that the Coyotes will be better off somewhere else, or that the league's configuration wouldn't be better if they moved; or that they would be more profitable in Quebec or elsewhere.

We're merely stating that moving Phoenix doesn't solve the economic issue that has us bogged down in a lockout.

It's really easy to scapegoat the teams losing money, but the fact is: The system is WHY they're losing money.

The league had a lockout because the players were getting 70% of HRR, and the owners all said "We can only go as high as 57%"

But 57% of HRR for someone like NYI, PHX, STL, CBJ, etc is only $44 million and the floor was slated to be at $62.4 million. That's like 80% of HRR for someone like NYI.

Another CBA solution would be to make an option for the floor be:
$8 million less than 57% of Average HRR (current floor) OR 57% of your team's HRR, whichever is lower.

I respect Kelly and I even mentioned him as the ideal guy to replace Gary but I am completly against expansion. This team needs to relocate and contracts teams left and right. It needs a drastic solution to fix it and go for broke.

That was interesting. Kelly says he is still in contact with a lot of players.

He also mentioned that if the owners were truly sincere about this grand sales pitch of 50/50, that they wouldnt create some artificial subset of revenues, subtract some costs, and maintain control over all the levers that can further manipulate those revenues that is allocated as HRR for sharing. They would just share 50% of all revenues. Otherwise, there is no real grand moral principle behind the number.

Baseball is said to spend a smaller percentage of revenues on salaries than the other leagues, but then MLB has no reason to create some artificial construct like BRI or HRR to use as their revenue figure. They just use baseball revenue.

He also said that anyone who thinks he would have been a pushover in these negotiations is sadly mistaken. He would have tried the good cop routine, but really, up against bettman, batterman, entire law firms with armies of lawyers forging new sports realities throughout the continent, this is not a time when many believe that an accommodating response is going to work best.

The owners disingenuous and poorly conceived idea for realignment they tried to shove through was allegedly based on the idea that there would soon be two new expansion franchises that would make the realignment fit best for them to move into.

So to take a portion of that money and set it aside for making the player contracts whole is an interesting thought, but it seems as likely the owners would set down that slippery slope as they would give up cost certainty. But who knows i guess, desperate times call for desperate measures perhaps.